The US currency finished the week on a decent note, after being able to either fully reverse or at least reduce earlier losses. A pullback in the oil price and the stock indices provided an island of peace. Washington worked hard to put on a façade of normalcy on the financial disaster that has been eating away wealth and threatened a worldwide depression. It worked last week. The dollar remains weak in the medium term, but if the oil drops below $125/gallon, perhaps it can mount a more sustainable recovery.    

Geopolitical and systemic risk, along with the fundamental change in energy costs, pressured the dollar during the past week, but only the euro and the Australian dollar surged. Sunday brought some sort of solution to the problem, so the US currency has a good chance to make at least a minor recovery. But keep an eye on the shaky S&P 500.  

The market remains divided about the next direction of the US currency, even though the weakness of the US economy clearly points south. But currency traders are looking forward, and the Eurozone and Japanese economies don’t look too hot either. With oil prices going up for a variety of real and fake reasons, the world economy is slowly getting chocked up. Expect violent moves in both directions, as directional confusion shouldn’t dissipate.     

The US currency was hit last week, and the easy explanation is that the US economy is on pretty bad shape. The economy is going to get in much worse shape, but the correlation with the dollar is not all that high. The European currencies remain in a tight trading range, while dollar/yen is stubbornly high.  The dollar should indeed weaken, but getting married to your position may be dangerous to your health.